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Soaring prices of sugar in the international market pose a major hurdle for imports even as the government has extended the deadline for duty-free imports to bring down domestic prices.

According to industry sources the landed cost of imported sugar at current international prices works out to over $800 (Rs 36,800) a tonne. This translates to a retail price of around Rs 45 per kg after port handling, transport costs, countervailing duty and retail margins.

Sugar is selling at around Rs 40 a kg in the retail market, up from Rs 17 a kg a year ago.

"Since the price of imported sugar would exceed the prevailing domestic market price, there is no point in importing at this juncture," said Mehul Aggarwal, commodity expert at Sharekhan.

Aggarwal said, "Earlier, we had imported sugar at $ 750 per tonne but the landed price has now gone up to $815 a tonne." India has already been buying raw and white sugar from Thailand and Brazil to meet the shortfall in the domestic market and this has driven up prices to peak levels in the international markets.

Indian Sugar Mills Association (ISMA) acting director general H.N. Rao said the minimum landed price of imported sugar from Thailand is $800 a tonne. The price of imports from Brazil is even higher.

Each time India steps into the international market to make purchases of food items prices shoot up as large quantities are expected to be bought given the huge size of the country.

Indian sugar production is expected to decline to 16 million tonnes in the 2009-10 marketing year, which began on October 1, while annual demand is 23 million tonnes.

The country has already imported around five million tonnes of raw and white sugar, and more would be required to bridge the gap.

According to Aggarwal, there is bound to be a decline in demand in the domestic market as consumers will curtail consumption of sugar due to the spiralling prices. This, in turn, would help steady the price of the sweetener.

However, the root cause of the shortage is that several farmers have stopped growing sugarcane as the mills have not been paying them their dues on time.

Sugar production in the first three months of the current season has been even lower than in the previous year because protesting farmers had held back sugarcane supplies.

Farmers also complain that mill owners are raking in money from the production of molasses, a by- product of sugar used in making alcohol. Yet, they hold back the payments, the farmers complain.

The grouse of the mill owners is that a neat chunk of the sugar production is taken as levy by the government at below market price to feed the public distribution system (PDS).

The situation has been complicated further as the UP government has banned imported raw sugar due to the farmers' protests.

Large quantities of raw sugar which was to be processed by sugar mills in UP is stuck at various ports.

The government has now decided to relax excise rules so that mills in other states can process these stocks and bring them into the market.

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